A Quote by Steve Hanke
Although floating and fixed rates appear dissimilar, they are members of the same freemarket family. Both operate without exchange controls and are free-market mechanisms for balance-of-payment adjustments.
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The lesson for Asia is; if you have a central bank, have a floating exchange rate; if you want to have a fixed exchange rate, abolish your central bank and adopt a currency board instead. Either extreme; a fixed exchange rate through a currency board, but no central bank, or a central bank plus truly floating exchange rates; either of those is a tenable arrangement. But a pegged exchange rate with a central bank is a recipe for trouble.
When financial sectors are small and capital is mobile, floating exchange rates spell massive currency volatility. When a lot of foreign capital flows in, a freely floating exchange rate rises sharply, wreaking havoc for domestic banks and exporters alike.
The problem is that, in a world of floating exchange rates, as Italy was before the euro, if one country is subjected to a shock which requires it to cut wages, it cannot do so with a modern kind of control and regulation system. It is much easier to do it by letting the exchange rate change. Only one price has to change, instead of many.
That day the U.S. announced that the dollar would be devalued by 10 percent. By switching the yen to a floating exchange rate, the Japanese currency appreciated, and a sufficient realignment in exchange rates was realized. Joint intervention in gold sales to prevent a steep rise in the price of gold, however, was not undertaken. That was a mistake.
It [the free market] is an organizational way of doing things, featuring openness, which enables millions of people to cooperate and compete without demanding a preliminary clearance of pedigree, nationality, color, race, religion, or wealth. It demands only that each person abide by voluntary principles, that is, by fair play. The free market means willing exchange; it is impersonal justice in the economic sphere and excludes coercion, plunder, theft, protectionism, and other anti-free market ways by which goods and services change hands.
Paradoxically, those who call for family values also tout the wonders of an unregulated market without observing the subtle cultural links between the family they seek to regulate and the market they hold free.
You can't say British Columbia's carbon tax is exactly the same as increasing hydroelectricity rates in another province. They're very different mechanisms, but we shouldn't deny that both of them can have an impact, and that's why we're talking about this broadly.
It is not uncommon to suppose that the free exchange of property in markets and capitalism are one and the same. They are not. While capitalism operates through the free market, free markets don't require capitalism.
The most important single central fact about a free market is that no exchange takes place unless both parties benefit.
To investors, job creation is a second-order effect. Market participants care first about interest rates, exchange rates, bond prices and the one great factor that affects all three: the long-term solvency of a bond company called the U.S. government.
Liberal economists conceive of societies as black boxes connected by exchange rates; as long as exchange rates are correct, what goes on inside the black box is regarded as not very important.
When the weather changes and hurricanes hit, nobody believes that the laws of physics have changed. Similarly, I don't believe that when the stock market goes into terrible gyrations its rules have changed. It's the same stock market with the same mechanisms and the same people.
Most economists use 'fixed' and 'pegged' as interchangeable or nearly interchangeable terms for exchange rates.
It is not true at all that a free market will ensure a democracy. It doesn't. There must be a balance between a free market and some regulations which are essential in order to safeguard the interests of consumers and of people in general.
Well, we're just now seeing the reductions in mortgage rates. The mortgage rates are based on the ten-year rate and the Fed controls the overnight or the shorter rates.
It seems to me that a market exchange rate which is not artificially controlled by central banks enables one to balance the interests of different market players - exporters and importers, investors, borrowers, lenders.
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